Time management
Paid time off: the pros and cons of a PTO policy
Unpack the benefits and drawbacks of a PTO policy: understand how paid time off impacts employees and your business.
Unclaimed PTO can directly affect your business's bottom line. Let's explore the financial and unseen costs of unclaimed PTO on your organization.
“Wow, you really need a vacation!”
Unclaimed PTO is easy to recognize. It’s that look on an employee’s face when they’ve finally reached their breaking point. It’s been too long since their last vacation and they’re done.
There may have even been signs along the way: a shift in attitude or morale, a sudden increase in absenteeism, or noticeable changes in engagement and productivity.
If left unchecked, stress can result in a level of exhaustion that even a vacation can’t take the edge off. In short, by that time, it’s too late.
“How long has it been?”
While employee benefits generally include paid time-off, there’s nothing in place that requires an employee to actually take that time.
Consequently, this can lead to employees skipping their vacation days altogether for a variety of reasons. Too busy, no one to cover for them while they’re gone, or wanting to show dedication to their job, to name a few. This could also stem from company culture that is ambivalent or even discouraging about taking time off.
Unclaimed PTO can pile up quickly. In fact, Canadians leave 31 million paid vacation days unclaimed each year. That number jumps to 430 million unclaimed vacation days in the United States.
One study from Glassdoor shows that the average U.S. employee receiving paid time off is only taking 54% of their eligible time. This means that employees are routinely missing essential opportunities to rest and enjoy life outside of work.
Naturally, it’s in an employer’s best interest to have happy, motivated, and energized employees. Unfortunately, neglecting to take enough personal time away from work can contribute to serious consequences in terms of stress.
And stress comes with a high cost for employers.
Calculating the Rising Cost of Stress
To put unclaimed PTO into context, it’s helpful to understand the dollar value behind an employee who’s on the verge of burnout.
Studies indicate that 47% of working Canadians consider work to be the most stressful part of their daily lives. In fact, a Monster Canada survey showed that 1 in 4 Canadians have quit their jobs due to overwhelming stress.
Furthermore, the World Health Organization (WHO) now considers burnout a diagnosable condition that costs between $125 billion and $190 billion every year in US healthcare costs.
For employers and HR professionals concerned with creating a healthy workplace, it all comes down to understanding (and mitigating) the cost of stress.
Cost Breakdown of Unclaimed PTO
Absenteeism
When workplace culture does not place a value on vacation time and paid time off, unplanned absenteeism can sneakily take its place.
The average direct cost of absenteeism due to mental health issues is $16.6 billion annually, according to the Conference Board of Canada.
Health Costs
Stress is insidious. The effects of ongoing on-the-job stress are cumulative and can grow more disruptive over time.
Sadly, this can contribute to the development of serious physical and psychological issues that affect our ability to be productive at our jobs or even show up for work.
According to the Mental Health Commission of Canada, 500,000 Canadians a week miss work because of a psychological health issue.
Turnover
Is workplace stress bad enough to make even high performing employees call it quits? Research indicates a resounding “yes”, showing that 42% of employees have actually changed jobs due to stress.
Hiring managers know that high turnover spells bad news for the company budget. The process of recruiting, interviewing, and training plus lost opportunity cost means that it’s far cheaper to keep a happy employee than hire a new replacement.
For example, mid-range salary positions cost about 20% of their annual salary to replace. So the cost to replace a $40k manager would be $8,000.
For lower-paying positions (under $30,000 per year), the average new hire will cost about 16% of their annual salary or about $3,328.
Time-Off to the Rescue!
Stress, poor work/life balance, and no time away from the office are the silent killers of work ethic and positive company culture. It also hurts your bottom line.
Often when companies are fighting against frequent absenteeism, rising health costs, and high turnover, the amount of unclaimed PTO can serve as a red flag.
Luckily, the solution can be as simple as encouraging employees to take their vacation time and enjoy time outside of work. Unlike stress—which has no measurable ROI—paid time-off is an essential part of employee and financial well-being.
Looking for a faster, easier way to request vacation time? Time-Off™ gives you the tools to submit, approve, and track time off for your entire organization (and your first 21 days are free)! Start your trial today!
Originally published December 2018, updated February 6, 2020